Labor and labor relations are at the heart of many economic theories. Much has been said about the principles and patterns of labor market development and changes in labor supply and demand. Recent years witnessed a dramatic surge in interest toward the issue of labor market discrimination and its macroeconomic implications.
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Chapter 13 of Samuelson and Nordhaus’s Economics provides ample information on wage determination and related issues, including perfect competition, labor quality and technology, immigration and labor force participation, and compensating differentials. Despite the dramatic changes in the U.S. labor market, the issues of discrimination continue to persist. This being said, the effects and economic outcomes of labor market discrimination have to be considered in detail.
Chapter 13 of Samuelson and Nordhaus’s book is devoted to the discussion of labor market processes and their effects on wages and incomes. The most important elements of the discussion include wage determination, immigration and labor force participation, and the effects of labor market discrimination on employees and their wages. Samuelson and Nordhaus (2001) claim that the demand for labor is one of the most important factors of the production construct. General wage levels change, depending on the levels of education, quality of training, and the effectiveness of production techniques used by workers (Samuelson & Nordhaus, 2001).
Wage levels further influence the supply of labor (Samuelson & Nordhaus, 2001). An increase in wages causes substitution effects, when employees are willing to work longer for the higher pay (Samuelson & Nordhaus, 2001). A similar increase may also result in an opposite trend, when workers are no longer willing to work long hours and can afford spending more time in entertainment and leisure.
In the atmosphere of perfect competition, wage differentials are absent and average wage levels are determined by changes in labor supply and demand (Samuelson & Nordhaus, 2001). This, however, is a fantastic picture of the labor market. Even in a perfectly competitive markets wage differentials are substantial. This is mainly because the labor market is never uniform: job qualifications and capabilities differ greatly across individuals and groups, and it is never possible to achieve the desired level of perfection in wage determination.
Samuelson and Nordhaus (2001) pay particular attention to the issue of labor market discrimination and its implications for wage determination. Jacobsen and Skillman (2004) define labor market discrimination as differences in labor market opportunities available to workers for reasons other than productivity, qualifications, or workplace conditions. According to Nordhaus and Samuelson (2001), labor discrimination comes from multiple sources, and noncompeting groups are the most salient factor of sustained discrimination in the U.S. labor market.
U.S. labor markets are segmented in ways that relegate women and minorities to inferior, dead-end jobs and justify the existing differentials in wage levels (Nordhaus & Samuelson, 2001). Employers judge and predict future workplace performance, based on average characteristics and behaviors of all members of the same minority group (Nordhaus & Samuelson, 2001). More often than not, discrimination is not obvious but subtle; it reduces individual motivation for self-improvement and re-establishes the existing group stereotypes (Nordhaus & Samuelson, 2001).
The effects and scope of labor market discrimination at the macroeconomic level have been abundantly documented. Of particular interest are the microeconomic implications of labor discrimination and the motives behind it. In 2010 Vendrik and Schwieren published their article on stereotyping and screening in labor market discrimination. In this article Vendrik and Schwieren (2010) formulated a model that addressed “the way in which a risk-averse employer forms his expectation of the relative productivities of a number of equally qualified candidates for a position” (p.143).
The authors assume that, sometimes, employers may build staff decisions based on the objective data borrowed from hiring tests, job interviews, and other relevant sources (Vendrik & Schwieren, 2010). Simultaneously, employers may use their stereotypic conceptions of average productivities and labor market patterns in groups job candidates belong to (Vendrik & Schwieren, 2010). The current state of labor market in the U.S. is characterized by high levels of uncertainty.
Risk-averse employers want to develop relevant productivity estimates (Vendrik & Schwieren, 2010). Hypothetically, risk-averse employers should use job screening to create an objective productivity picture of all job candidates. Yet, screening expenditures are extremely high, and so are the opportunity costs of screening procedures compared to stereotypical information about job applicants (Vendrik & Schwieren, 2010). Vendrik and Schwieren (2010) conclude that in conditions of uncertainty, employers tend to rely on stereotypical information about job applicants’ future productivity and, consequentially, reinforce stereotypes and discrimination in the labor market.
The relationship between the article and Chapter 13 of the textbook is obvious. First, both sources expose and affirm the presence of labor market discrimination. Second, both sources reconsider the issue of discrimination from a new, economic perspective.
Third, Samuelson and Nordhaus (2001) and Vendrik and Schwieren (2010) confirm that discrimination in labor is associated with stereotypical beliefs about productivity and greatly affect the monetary value of wages. Unfortunately, the long-term effects of these stereotypes are persistently disregarded: more often than not, discrimination and stereotyping cause a chain reaction of economic outcomes, reducing self-improvement motivation among minority individuals and contributing to stereotypical representations of their productivity and performance.
The U.S. labor market is characterized by high levels of uncertainty. In this situation, risk-averse employers naturally strive to produce relevant productivity estimates. Job screening could become an effective way to evaluate job candidates; unfortunately, screening is a costly procedure. For this reason, employers use stereotypical information of average productivities in groups job candidates belong to. This is how employers contribute to labor market discrimination which further affects labor market productivity and wage differentials and outcomes.
Jacobsen, J.P. & Skillman, G.L. (2004). Labor markets and employment relationships: A comprehensive approach. NY: John Wiley & Sons.
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Samuelson, P.A. & Nordhaus, W.D. (2001). Economics, 17th ed. McGraw-Hill.
Vendrick, M.C. & Schwieren, C. (2010). Identification, screening and stereotyping in labor market discrimination. Journal of Economics, 99, 141-171.